How will Canada grow in the next 50 years? Blog #3

Winston Churchill is reputed to have said “The farther back you can look, the farther forward you are likely to see.” Let’s test that idea by looking at innovation and economic growth.
Robert Gordon, an economist at Northwestern University wrote “The Rise and Fall of American Growth”, which looked at economic growth and innovation over the last couple of hundred years and included the diagram below for changes in productivity:

From Gordon’s point of view, you can think of the past 150 years unfolding as a series of industrial revolutions. The first one – based on waterpower, the steam engine and its offshoots – the railways, steamships, and the shift to iron and steel – resulted from inventions made in the period from 1770 to 1820. This was a big enough revolution to drive economic growth through most of the nineteenth century.

The second industrial revolution resulted from inventions in electricity and the internal combustion engine in the late nineteenth century. This included automobiles, highway construction, and television, and electrification of factories, among many others. This drove economic growth to around 1970. The third industrial revolution was associated with information and communications technology and started in the 1960s. This had a profound effect but in a much narrower part of the economy. That explains the drop off in productivity after 1970.

Through all of this change, however, real gross domestic product (GDP) per capita in Canada just continued growing at a steady 2% a year, on average. This works out to a doubling every 35 years. The graph below from the World Bank shows this from 1961.

So what might the future hold?

If you look at the fundamentals, we have a number of radical technologies at an early stage of development. Examples are robotics, artificial intelligence, and genetic engineering. These would appear well positioned to drive growth in the next few decades. Offsetting this, however, we have an aging population, but increasing longevity and increasing education.

If you ask the experts, there are several recent reports:

PricewaterhouseCoopers, in “The World in 2050” projects that Canada will grow its real (inflation adjusted) GDP per capita at roughly 1.6% annually, on average, to 2050.

The OECD in an outlook to 2060 projects that Canada’s GDP per capita between 2011 and 2060 will grow at 1.6% on average (at US PPP).

The Conference Board of Canada says that over the long term, potential output will be limited to annual growth below 2 per cent as the aging of the population puts downward pressure on labour force growth.

If you ask me? I would place a hefty bet that for the next few decades will be in the 1½ – 2% ballpark on average. Despite what the gloomsayers think, that’s not bad. It means a doubling of wealth every 35 years or so. So a doubling every generation, just like the last 50 years.